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Small company with 2 directors and 50/50 shareholders of which one of them has sadly passed away suddenly.

The issue we have is that we have just finalised the most recent accounts and there is an overdrawn directors loan for both of the directors/shareholders. The year end date was about 10 days after he died.

Therefore could anyone guide me as to what happens to the directors loan for the individual who has died please?

Presumably if the director had died prior to the year end he was by default no longer a director? As such I'd question the treatment of it as a director's loan for taxation purposes. There are certainly more experienced users who may comment, but this would be my first line of enquiry. What happens with the resulting debtor presumably lies with the remaining director.

Not sure what the problem is here. Upon the death the deceased’s liability to the company ipso facto became a liability of his estate, for his executors to repay out of the assets in his estate when they have obtained probate. That is all.

But the decision to write off is made now, after death. You need to distinguish the deceased from the estate. Income of the deceased goes on tax return to date of death. Income of the estate is taxable on the estate.

What should happen is the estate repays the debt and there is no income. Since the estate presumably has 50% of the shares, one would imagine that it has assets to repay the debt. Job done.

If instead the debt is waived, that is a receipt of the estate post death. I am not aware of any reason why it should be taxable - doesn't mean there isn't one of course (use a double negative for proper self deprecation).

The surviving director.... And now 100%
Shareholder..? .... Think about this..? Articles etc.....

... May want to be assured that zero cash outflows to HMRC will follow untimely death of director

The surviving director may also want assurance that the director loan accounts have been accurately recorded... And are indeed loans...

P11d season ends in 3 weeks. Bik on the loan interest.

The surviving director may have questions that he is afraid to ask... Or didn't even know such questions existed.

The executors of the deceased estate, lawyers may be appointed if money is demanded from the estate , may raise their own questions when deceased director tax liabilities are being finalised.

Where I have clients with non relative partners or Co directors or participators
I always raise the subject of life cover.

Policy written in trust for survivor... Or the company.

Company bank account pays the premiums... Then all parties know cover is in place.

Then on specific transactions... In this case a meaningful loan...

.. Life cover or ability to repay loans is discussed again.

Case study
Case in point

30 years ago a partner died. This was pre self assessment... Note For older readers partnership tax was a joint and several liability

Partnership business liabilities and tax liability fell on surviving partner.
His own skill sets were not adequate to keep the business going
His marriage did not survive the financial burden and stress that followed.

The deceased partner life cover was in trust.... To building society and spouse.